EVENTS

The tricky legal issue of standing

I discussed on Sunday the main aspects of the case that was decided on Friday, November 21 2013 by a US District Judge in Wisconsin Barbara Crabb, concerning the so-called ‘parsonage exemption’ in which a housing allowance paid to clergy that was exempted from being included as gross income for taxation purposes.

I want to revisit a different aspect of that case because it sheds light on the important but tricky legal issue of ‘standing’, as well as the extent to which the meaning of words like ‘religion’ and ‘minister’ can be stretched.

To recap, the plaintiffs Annie Laurie Gaylor and Dan Barker of the Freedom From Religion Foundation sued the Treasury Secretary and the Commissioner of the IRS (the defendants) saying that the Administrative Procedure Act, 5 U.S.C. § 702(2) that allows “ministers of the gospel” to exclude from their gross income a minister’s “rental allowance paid to him as part of his compensation” was unfair because they did not get a tax exemption for their housing allowance but religious ministers did. They said that this discriminatory practice violated the due process clause of the Fifth Amendment which has over time, under the Fourteenth Amendment, been interpreted to require equal protection under the laws, and the Establishment Clause of the First Amendment.

The judge ruled that the parsonage exemption violated both the purpose and effect prongs of the Lemon test most commonly used for adjudicating Establishment Clause violations and thus was unconstitutional. As such, she did not have to further examine whether the entanglement prong of the Lemon test (p. 41) or the equal protection clause had also been violated (p .2).

So where does the issue of standing come in?

In order for a private party (individual or a group) to bring a legal case against another party, the person bringing the suit must have what is known as ‘standing’ to sue. At the very least, that means that the person must have suffered some direct injury and that the court is in a position to provide redress for that injury. This is so that we do not have a flood of lawsuits by people on behalf of someone else. So if one of my neighbors swindles another of my neighbors, I cannot take the first one to court on the second neighbor’s behalf because I am not the person to have suffered the injury.

This is true even for major constitutional violations. However bad the violation, you cannot sue the government unless you can prove a direct injury. You may recall that the government has used a combination of secrecy and standing arguments to have wiretapping cases against them thrown out, saying for example that since individuals could not prove that the government had illegally spied on them (because these government programs had to be kept secret allegedly to keep terrorists from knowing of them), the people could not show that they had been injured in any way and thus had no right to sue.

Hence one of the first issues to be adjudicated in any case is whether the party bringing the suit has standing to sue. In many cases, the issue is pretty straightforward but this case raises the issue in an interesting way and in her ruling the judge spent a bit of time (p. 4-15, or 12 pages in a 43 page ruling) going into it.

In order to establish standing, Gaylor and Barker deliberately had the FFRF provide them a housing allowance as part of their remuneration. They were then able to argue that they were not eligible for this exemption purely because of their lack of religion and that eliminating this unequal treatment would remove their injury, because there have been precedents that being denied a benefit conferred to others on account of religion constitutes an injury and that removing such an unequal benefit constitutes appropriate redress.

The government argued that the plaintiffs had not actually suffered an injury because they had not applied for the exemption and been turned down. It is only if they applied and were denied that an injury would arise. They even suggested that their application for an exemption may have been approved.

But the judge rejected that argument.

In several cases, courts have rejected establishment clause challenges to tax exemptions brought by parties who filed claims for the exemption that were denied. In each of those cases, the court held that the party could not receive the exemption if the court declared it to be unconstitutional, so a favorable decision could not redress their injury. (p.6)
…

In their reply brief, defendants argue that it “does not matter whether Ms. Gaylor or Mr. Barker would or would not be eligible for the exclusion provided in § 107 if they claimed it. What matters is that an atheist may lawfully make a claim for the exclusion.” This argument is puzzling because it rests on a premise that a plaintiff’s own experience is irrelevant to the question of standing. That is obviously incorrect. A plaintiff’s standing to sue is determined not by asking whether some hypothetical third party is being injured, but by whether the plaintiff is being injured. (p.13)

You need to follow the reasoning closely. Courts have ruled that if someone requested a religious benefit and was denied, and then challenged the award of that benefit saying that it was unconstitutional, courts have denied standing to challenge the law because the redress being asked for (that the benefit be ruled unconstitutional) would not benefit them in any way. As the judge said, this amounted to a kind of Catch-22 that could insulate § 107 from challenge by anyone.

She said that it was clear from the language of the statute that Gaylor and Barker would not qualify for the exemption.

In any event, I considered and rejected defendants’ argument in the context of denying their motion to dismiss. In particular, I concluded that plaintiffs’ alleged injury is clear from the face of the statute and that there is no plausible argument that the individual plaintiffs could qualify for an exemption as “ministers of the gospel,” so it would serve no legitimate purpose to require plaintiffs to claim the exemption and wait for the inevitable denial of the claim. (p.6)

The judge also rejected the argument that it was possible that Gaylor and Baker could conceivably be considered “ministers of the gospel” as required by the law to receive such an exemption, saying:

Although defendants devote a substantial amount of their briefs to this argument, it is difficult to take it seriously. Under no remotely plausible interpretation of § 107 could plaintiffs Gaylor and Barker qualify as “ministers of the gospel.” (p.8)
…

As I noted in the order denying defendants’ motion to dismiss, the IRS has interpreted § 107 liberally to include members of non-Christian faiths… However, even if I assume that IRS would continue to stretch the plain meaning of § 107, there is a difference between non-theistic faiths such as Buddhism and having no faith at all… Defendants point to no regulations or decisions suggesting that a person who did not subscribe to any faith could qualify for an exemption under § 107(2).

Regardless whether the IRS might recognize atheism as a religion, this does not answer the question whether it would recognize an atheist “minister,” which is the only question that matters. Defendants cite no evidence that atheists have “ministers” as that term is used in § 107, which is sufficient reason to reject an argument that an atheist could qualify for an exemption under that statute. (p.9)

The judge also dismissed the idea that the kinds of work that Laurie and Barker did could be construed as that of a ‘minister’.

In Knight, the court considered whether the claimant: (1) performs sacerdotal functions under the tenets and practices of the particular religious body constituting his church or church denomination; (2) conducts worship services; (3) performs services in the control, conduct, and maintenance of a religious organization that operates under the authority of a church or church denomination; (4) is ordained, commissioned, or licensed; and (5) is considered to be a spiritual leader by his religious body. (p.10)
…

Accordingly, I conclude that plaintiffs have standing to bring a facial challenge to § 107(2) because the statute denies them an exemption that others receive, the injury is fairly traceable to the conduct of defendants as those responsible for implementing the tax code and plaintiff’s injury is redressable by a declaration that § 107(2) is unconstitutional and an order enjoining its enforcement. (p. 15)

I think this is an important case that is going to have a big impact. As is common in major cases, the judge stayed the implementation of her ruling until all appeals are completed or the deadline for filing them has passed. If the government appeals, as is likely, it could go all the way to the Supreme Court. If the government does not appeal and eliminates the housing allowance, this could cost religious organizations an estimated $2.3 billion over five years. Religious groups will have to decide if they want to go to court to claim the exemption once again, or try to get the housing allowance in some other form that circumvents it being taxed.

Comments

…try to get the housing allowance in some other form that circumvents it being taxed.

I recognize that would be a short-term solution and would be a serious open door for other attacks on tax exemptions for the religiously gifted which means those desirous of the exemption may have to bet the farm and go down swinging.

Here’s a question: my son is a member of our public school choir. Last spring, our school in conjunction with three other public school performed a concert in a local church. Most of the songs were christian, including all 3 songs performed by one of the other schools. I contacted FFRF and in the course of back-and-forth letters, in was revealed that I was from school X. The lawyers representing two of the other schools (one of which being the one that performed the 3 christian songs) immediately bowed out. Since this was a joint concert by 4 schools, would I have standing against all of the schools or only my school?

this could cost religious organizations an estimated $2.3 billion over five years.

I can imagine it as a $2.3B gain for the IRS, but how would it be a cost on the organizations? If we assume the religious organizations would continue to provide housing in money or kind at the same rate, the cost would fall on the “ministers” who would now have to pay tax on that part of their compensation. The effects of this could be entertaining. For protestant ministers, who in the main get pathetic salaries, the addition of the housing allowance might raise their taxable income 50% or more, bumping many to higher brackets. For catholic priests, who don’t get a salary as such, the value of their housing might be such as to force them to file a return for the first time ever!

For both, the value of housing may be hard to calculate when, as is often the case, they simply reside rent-free in a church-owned building. They’ll have to get “comparables” from the local real-estate market. Chances are they will often turn to a local realtor who’s on the church or parish board, who’ll give them a friendly guesstimate, which will never be questioned by the IRS.

In any case, the only way it would be a cost to the religious organizations would be if they chose to “gross up” the ministers’ pay to cover the extra tax. Some of the successful mega-churches might do this. Most small congregations don’t have the money, or the tax accountancy skill, to do it. So the cost will fall on the ministers.

This particular case did not consider the case where actual housing is provided to clergy so that benefit remains untouched. It only death with situations where the clergy were given an allowance to offset the cost of housing.

I am not a lawyer so take what I say with a huge grain of salt. Unless the schools were part of a formal consortium, I think that you would only have a case against your son’s school. But if you win the case, then all the schools in that court’s jurisdiction would be bound by the ruling.

That’s very interesting about the Catch-22 they would have found themselves in. The government absolutely loves those situations, and you can see they eagerly argue for them. Its interesting to see it applied in this case, you usually find it (like you said) with national security issues like wiretapping.

Based on the highlights you provided, I’m definitely going to have to read through this case. (I’m not a lawyer either, but I play one on TV.)

This caught my attention:

As I noted in the order denying defendants’ motion to dismiss, the IRS has interpreted § 107 liberally to include members of non-Christian faiths… However, even if I assume that IRS would continue to stretch the plain meaning of § 107, there is a difference between non-theistic faiths such as Buddhism and having no faith at all… Defendants point to no regulations or decisions suggesting that a person who did not subscribe to any faith could qualify for an exemption under § 107(2).

Regardless whether the IRS might recognize atheism as a religion, this does not answer the question whether it would recognize an atheist “minister,” which is the only question that matters. Defendants cite no evidence that atheists have “ministers” as that term is used in § 107, which is sufficient reason to reject an argument that an atheist could qualify for an exemption under that statute. (p.9)

The defendants are treading on thin ice here. In trying to defend the status quo, if the judge accepted this argument, it would open up the door for everyone in the US to claim their home as an exemption of the same type. I suspect the judge recognized that. Since the judge has the option of going either way in the ruling as far as applying the rule to all, or to none, the option to apply it to none (thereby revoking the religious privilege) makes more sense from the IRS/tax collecting point of view.

I hope that the FFRF changes their tax structure for housing (after this one is through the system) to the same as the Catholic church uses, then challenges that as well.

Amazing what a little online research can turn up! Here is the IRS statement on “Earnings for Clergy” (http://www.irs.gov/taxtopics/tc417.html). It has several paragraphs significant to the current topic.

The gross income of a licensed, commissioned or ordained minister does not include the fair rental value of a home (a parsonage provided), or a housing allowance paid, as part of the minister’s compensation for services performed that are ordinarily the duties of the minister.

It is interesting that the subject of the current action affects only a clause of that sentence. It sure looks as if the IRS equates “parsonage provided” with “housing allowance paid” for income purposes. So if the present verdict is sustained, I don’t see the free housing surviving long.

A minister who is furnished a parsonage may exclude from income the fair rental value of the parsonage, including utilities. However, the amount excluded cannot be more than the reasonable pay for the minister’s services.

Whoa, nellie! Does this actually say that not only does the clergyman not pay tax on the housing benefit, but can exclude its fair market value from his other income? That would be a nice double-dip. I must be reading it wrong…

There’s several other interesting features in that write-up. Like, a housing allowance is only excludable from income, not from self-employment taxes. So a free-lance evangelist, who is self-employed or a contractor, can’t claim one.

Churches and their employees should be taxed just like any other businesses and individuals, but this is another case where lobbyists have bent the system for their clients’ benefit and democratically elected representatives have bowed to the will of the majority of their constituents in order to get elected.

To my way of thinking, the Bill of Rights guarantees that individuals are free to think what they want to about religion, to speak their views, and to gather together to conduct legal religious rituals without government interference, and that no government or government agency may conduct religious activities or use tax money to support them. It is 224 years and counting and we are still trying to get government out of the religion business and religion out of government– despite the First Amendment. More power to the FFRF. and I am sending them a small donation and a thank you note.